Explain how commutations are accounted for and taxed, and why the parties agree to them.
Free CAS Exam 6-U.S. (Regulation and Financial Reporting) lesson in Reinsurance Accounting Principles. 7 min read, ~1,124 words.
A commutation terminates a reinsurance contract: the reinsurer pays a single settlement and the cedant reassumes all future liabilities. The commutation payment is usually below nominal reserves, reflecting time-value discount and negotiation. Reinsurer books a gain equal to its own carried reserves released minus the payment made. Cedant books its...
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- Example 2
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Learning objectives
- D3
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